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Spring Budget 2021_businesses
Read time: 4 minutes
Last updated: 3 Mar 2021
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Spring Budget 2021: UK Interest and Royalties Directive repealed

From today, the UK Interest and Royalties Directive has been repealed with immediate effect. As a result, EU member states will no longer automatically benefit from UK withholding tax exemptions on Interest and Royalty payments.  

The UK's ability to withhold tax on cross-border payments of annual interest and royalties will now be solely governed by the terms of the tax treaty between the UK and the relevant member state. 

Companies resident in EU member states who receive Interest and Royalty payments from the UK may no longer benefit from withholding tax exemptions. 

After leaving the EU, the UK had lost the benefit of being a part of the EU Interest and Royalties Directive, where withholding taxes were removed on interest and royalty payments between EU member states. However, the UK still had domestic legislation in place to keep the treatment for payments made from a UK company to an EU recipient the same. 

The domestic legislation created a situation where payments made from the UK to an EU member state may be made free of withholding taxes. However payment from an EU member state to a UK company may be subject to withholding tax. In response to this mismatch, the legislation has now been repealed. 

Going forward, whether withholding taxes apply and the rate to be withheld will be set out by the Double Tax Treaty between the UK and the relevant EU member state. In some cases this may lead to UK withholding tax now being due on payments. 

Groups who have existing claims for withholding tax relief agreed with HMRC, that rely on the directive, should review and update these accordingly to claim under the relevant tax treaty where possible. 

About the authors

Liam McKeevor

+44 (0)20 7556 1244
mckeevorl@buzzacott.co.uk
LinkedIn

Jamie Nolan

+44 (0)20 7556 1200
nolanj@buzzacott.co.uk
LinkedIn

The UK's ability to withhold tax on cross-border payments of annual interest and royalties will now be solely governed by the terms of the tax treaty between the UK and the relevant member state. 

Companies resident in EU member states who receive Interest and Royalty payments from the UK may no longer benefit from withholding tax exemptions. 

After leaving the EU, the UK had lost the benefit of being a part of the EU Interest and Royalties Directive, where withholding taxes were removed on interest and royalty payments between EU member states. However, the UK still had domestic legislation in place to keep the treatment for payments made from a UK company to an EU recipient the same. 

The domestic legislation created a situation where payments made from the UK to an EU member state may be made free of withholding taxes. However payment from an EU member state to a UK company may be subject to withholding tax. In response to this mismatch, the legislation has now been repealed. 

Going forward, whether withholding taxes apply and the rate to be withheld will be set out by the Double Tax Treaty between the UK and the relevant EU member state. In some cases this may lead to UK withholding tax now being due on payments. 

Groups who have existing claims for withholding tax relief agreed with HMRC, that rely on the directive, should review and update these accordingly to claim under the relevant tax treaty where possible. 

Get in touch
These changes could require immediate action by impacted groups.  If you need support with reviewing the position or making a claim under the tax treaty, please get in touch. 
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